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Unions, Politics, and Money: Campaign 2008

In a democracy, social issues regularly become political issues, and solutions (including compromises) are worked out through public elections. Since employers and unions are frequently on opposite sides of key issues, both attempt to involve the public and spend extensively to support their respective positions or solutions. Both the short- and long-term ramifications of this process can be of serious concern to employers.

American unions: a brief political history
For their first 75 years, American unions explicitly forswore partisan politics in favor of economic power. Although the first American Federation of Labor, or AFL, constitution ominously described a determined “struggle . . . between the oppressor and oppressed of all countries, a struggle between the Capitalist and the Laborer,'” it elsewhere included a nonpartisan political pledge.

Thus, while labor movements in several European countries allied with and ultimately dominated single political parties, American unions believed, in the words of Time magazine, that “political activity must be non-partisan and secondary” to exercising economic muscle (i.e., willing to strike major corporations or even entire industries).

The contrast between the post-World War II United Kingdom and the United States is striking. Great Britain’s Labor Party became the majority party and engineered legislation nationalizing many key industries. American unions, however, called industrywide strikes such as the 1950s steel strike, which forced President Dwight D. Eisenhower to declare a national emergency.

The attitude of U.S. unions began to change in the 1950s, following the Republican Congress’ Taft-Hartley amendments to the National Labor Relations Act (NLRA) , which restricted many of labor’s economic weapons. Afterward, American unions increasingly became a key constituent in the National Democratic Party. Even the defection of key unions from the AFL-CIO in 2006 — in part because of the AFL-CIO’s reputation for favoring election politics over organizing new members — failed to slow the growth in unions’ direct political involvement.

Labor and business: political spending and checkpoints
The Wall Street Journal reported on January 18, 2008, that labor political spending was about half of business spending. Significantly, however, after the passage of the 2002 Bipartisan Campaign Reform Act (or the McCain-Feingold Act, which was intended to restrict business and union election spending), business spending began to decline while labor spending continued to increase. The Journal’s “gap” is misleading, in part because reported union spending understates both the actual dollars and delivered value. As part of nonpartisan “educational” efforts, unions spend substantial amounts for voter registration, get-out-the-vote programs, and educating members on various issues.

To the extent that the unions’ nonpartisan educational campaigns sensitize union members to political issues that may directly affect them, they reinforce Democratic talking points and promote tacitly Democratic candidates. In part, this is why Leo Troy, a well-regarded labor economist at Rutgers University, has stated that the value delivered to the Democratic Party by unions in a single election cycle may exceed $1 billion.

Unions and presidential politics: 2008
Although individual unions have divided their support between Obama and Senator Hillary Clinton, they fully agree on opposition to Senator John McCain, the Republican presidential nominee. For example, the AFL-CIO announced in early March that it had budgeted nearly $53 million in an effort to mobilize its members and member-related voters, and later, it launched a voter education program called “McCain Revealed.”

The program will educate almost 15 million voters in 23 states, with a major focus on five pivotal Midwestern states with high union concentrations: Michigan, Minnesota, Ohio, Pennsylvania, and Wisconsin. It will educate union members and other union-related voters on McCain’s economic policies and will challenge, for example, his alleged role in the Pentagon’s recent decision to award a multibillion-dollar tanker contract to Lockheed Martin/European Airbus over American manufacturer Boeing.

Long-range union political strategy: change playing field
Of potentially greater long-term significance are some of the highly sophisticated strategies unions are beginning to use to limit their historical enemy: business. Its most astute — and worrisome — strategy is what the former acting Solicitor of the U.S. Department of Labor (DOL), Eugene Scalia, called the “New Labor Activism,” which concentrates on harnessing the power of vast union pension fund investments to achieve its political or social goals.

In some industries, such as transportation and communications, a large portion of employer-financed employee retirement and benefit trusts is managed in whole or in part by union trustees. Billions and billions of dollars are involved. In 2007 alone, the United Automobile Workers (UAW) allowed the “Detroit Three” automobile manufacturers to shift liability for their underfunded retiree health and retirement benefits to the UAW. In exchange, the manufacturers agreed to transfer approximately $50 billion in assets to UAW-managed voluntary employee benefit associations.

AFL-CIO Secretary/Treasurer Richard Trumka, president of United Mine Workers of America, has been quoted as saying that unions should “organize” their funds in the same way they organize workers. By law, however, trustees managing such funds are obligated under ancient legal principles to manage them for the exclusive benefit of the beneficiaries.

Hiring only firms that support union policies
The trust funds are managed by trustees or directors, but the day-to-day tasks of providing investment advice, keeping records, and providing the required reports are performed by banks, insurance companies, or other investment advisory services. Private pensions and retirement funds have created a large and generally very lucrative support industry.

The DOL had been advised that AFL-CIO officials had suggested that trustees of benefit plans could use trust assets to “inform participants [beneficiaries] about the current debate on social security” and make decisions on hiring and firing service providers based on their opinions of social security reform. In other words, the trust funds could be spent to “inform” the beneficiaries about political issues and to hire and fire “service providers” (plan managers and investment advisers) based on the positions the service providers took on major public issues.

The DOL disagreed and firmly declared that trustees couldn’t penalize service providers on the basis of their positions on public issues. The DOL also stated that it would allow spending trust funds to communicate to plan participants only “in certain very narrow circumstances,” namely, when legislative proposals were “near enactment and closely tied to plan issues.” For the time being, the DOL appears firmly opposed to the AFL-CIO strategy. However, in a Democratic administration beholden to organized labor, the DOL may see things differently.

Proxy resolutions and votes
To the extent that union trust funds are invested in publicly held corporations, they have — on at least an annual basis — an opportunity to vote on issues typically presented by the corporations, such as election of directors and ratification of accountants and charter amendments. Stockholders also may initiate resolutions, which could range from amending the charter process for electing directors to requiring specified actions by the businesses.

Unions have become active stockholders of public corporations, and by some accounts, they are the most vigorous promoters of stockholder initiatives. A recent University of Chicago study indicated that trustees of union funds regularly promote proxy solicitations that are designed to support labor objectives more than to increase stockholder value. An example offered by Scalia involved an attempt by union trustees in 2005 to force the Safeway grocery chain to fire its management team because of the team’s role in directing Safeway’s leadership of West Coast grocers’ resistance to union demands and operating successfully in the face of a prolonged strike.

In a December 21, 2007, advisory letter, the DOL suggested that the proxies must be voted on in a manner that’s “likely to result in an enhancement of the value of the plan’s investment,” not support extraneous labor policies. Even more recently (February 13, 2008), the U.S. Securities and Exchange Commission (or SEC, which regulates corporate proxy solicitations, among other things) issued a series of “no-action” letters that, in effect, rejected union complaints that certain corporations refused to allow union-sponsored proxy solicitation regarding election of directors. The SEC vote was 3-1, with the sole Democrat voting to authorize an investigation and possible action against the corporations. Lurking in the background are union proposals to require high-ranking officers to publicly report their personal contributions to political causes, a clear desire to deter support for probusiness causes.

Investing with a covert purpose
A little-addressed issue that would be more difficult to regulate is the possibility that union trustees could invest only in shares of companies with “union-friendly” policies. When challenged, they could argue a belief that in the long term, such corporations are more successful and result in “enhanced value of the plan’s investment in the corporation.” A challenger would have to show that trustees acted in bad faith or were reckless. That would be a difficult undertaking and expensive to challenge judicially. As union-directed trust funds grow, corporations’ need for capital could force a less aggressive resistance to union demands and a lessening of support for business-friendly political issues.

Summary
The day-to-day political involvement of unions in the election process will continue, and a new administration that’s politically dependent on union support may see union election involvement as a public good and reduce current restrictions. It remains to be seen, however, whether direct election activities are as significant as they seem.

Exit polls from 2004 presidential elections are instructive in that area. Ohio is a highly unionized state, but a significant number of union members and their families rejected union advice on both social issues and the presidential candidates. And in the highly contested 2008 Nevada presidential primary, all-out efforts by UNITE-HERE and the Service Employees International Union (SEIU) and the high numbers of union-represented employees in Nevada didn’t translate into disproportionate votes for Obama.

The new labor activism is perhaps of greater concern in that combined with the current McCain-Feingold restriction on business expenditures, a prounion SEC and DOL could significantly lessen business’ voice, depriving the voting public of the probusiness importance of significant economic issues and thereby altering the political playing field itself.

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